By Laura Sanicola

(Reuters] – Global demand for petrol and diesel is not being met by refiners, causing high fuel prices.

The world’s fuel demand has returned to pre-pandemic levels. However, Russia sanctions, China export quotas and pandemic closings have strained refiners’ ability to supply the demand. China and Russia are among the top three largest refiners countries after the United States. These three countries are at or below their peak processing levels which makes it difficult for world governments to decrease prices via releasing reserves.

Due to pandemic two years ago, fuel margins were at the bottom of the barrels, leading to numerous closures. The situation is now reversed and prices could rise for several more years.

Ravi Ramdas is the managing director of Peninsula Energy. He stated, “When the pandemic coronavirus occurred, demand for world oil wasn’t expected to decrease for a prolonged time. Yet, so much refining capability was cut permanently.”

The International Energy Agency reported that global refining capacities fell by 730,000 barrels/day in 2021. This is the first decrease in thirty years. According to the International Energy Agency, April saw a drop in barrels per day of 78 million barrels per day, which was far less than the 82.1 million bpd average pre-pandemic.

For seven consecutive quarters, fuel stocks fell. The price of crude oil has risen 51% in the last year. However, U.S. futures have risen 71% and European gasoline refining margins reached a new record high at $40 per barrel. EFFECTIVELY SHORT

Independent analyst Paul Sankey says the United States is structurally short of refining capability for the first times in many decades. The U.S. has a nearly one million barrel loss in capacity compared to before the pandemic, which was 17.9 million barrels per day as February’s federal data showed.

LyondellBasell announced recently that it will close its Houston facility, which can process over 280,000 bpd. This decision was based on the high maintenance cost.

To meet the demand for oil, U.S. refineries are operating at maximum capacity, particularly in order to exports that have risen to over 6 million bpd, an unprecedented record. Current capacity utilization is at an all-time high of 92%. This season has been the most active since 2017.

Gary Simmons (Valero chief commercial officers) stated that “it’s difficult to see how refinery utilization can rise much.” “We have been at 93% utilization for a while; it is not something you can sustain over long periods.”

Refiners in northeast United States have been left without the necessary feedstocks to produce fuel due to the U.S. ban against Russian imports. Phillips 66’s (150,000 bpd) catalytic cracker has been operating at reduced rates at its New Jersey refinery because it can not source low-sulfur Vacuum Gasoil. Two sources who are familiar with this matter claim that Phillips 66 is using lower-than-normal fuel prices to run its New Jersey refinery’s 150,000 bpd catalytic crackeder. RUSSIA CAPACITY IDENTIFIED, CHINA RESTRICTING SPORTS

According to Reuters estimates, Russia has idled around 30% of its refining capacities due to sanctions. Analysts at J.P. Morgan said that outages currently amount to 1.5 million barrels per day, with 1.3 million remaining offline by 2022.

China is the world’s second largest refiner. It has built several million barrels more capacity over the past decade. However, in recent months, it has reduced production as a result of COVID-19 limitations and has capped exports in an attempt to reduce carbon emissions. According to the IEA, China’s April throughput fell from 14.2 Million bpd by 2021 to 13.1million bpd.

The supply is not being increased by any other country. According to a spokesperson, Eneos Holdings (Japan’s largest refiner) does not intend on reopening recently closed refineries.

Some projects have experienced delays. A Lagos refinery producing 650,000 bpd was due to be open in 2022, but it has been delayed until 2023. Sources close to the situation say that the refinery hasn’t yet found a company for commissioning, which could take several months.

Some of the restarts were successful. TotalEnergies, the French-owned company, started the process of restarting Donges’ refinery, which was closed in December 2020. In Malaysia, the 300,000-bpd plant had been restarted earlier in this month.

SUPPLY CRUNCH

In particular, diesel users in agriculture have suffered. Due to war, supplies from Russia and Belarus have been reduced for Ukrainian farmers.

Sri Lanka’s fuel crisis has forced it to close its sole refinery. In 2021, the country was short of sufficient foreign reserves to pay for import crude. The facility is being reopened because it has more fuel.

Petrobras Brazil, a state-owned company that owns Brazil, told the government it was unable to import diesel from the United States for tractor and farm equipment. This is in response to one of the most important agricultural countries on the planet.

“If refineries in the U.S. get damaged during hurricane season, or anything else contributes to the market’s tightness, we could be in real trouble,” said a Brazilian refining executive.